Two commonly used types of securities lending models include an agent lending model and a principal lending model. In the agent lending model, the lender acts as agent for its clients and lends bonds directly to the dealers. In this case, the name of the underlying client is usually known to the dealer. The client has virtually no decision in the securities to lend or how they are lent. In this model, dealers contact the lenders requesting to borrow a security. If the lender has a client with that security in their portfolio, the lender lends the bonds to the dealer. Therefore, the client gets a financing rate based on a single dealer and not the best rate available in the market. The securities lenders do not have access to the inter-dealer broker screens.
In the principal lending model, the dealer borrows the securities from the client and lends the securities to other brokers and dealers, thus acting as principal to the client. There is anonymity between the client and other market participants, but client anonymity within the dealer's organization cannot be assured, especially since the client's activity is managed on a trading desk. In this model, the dealer has valuable information regarding client positions and supply in a security. This information could be used to make proprietary trading decisions by the dealer. The lending activity in the principal lending model is also subject to the dealer's balance sheet restrictions.